In a remarkable demonstration of market buoyancy, the Dow Jones Industrial Average charted new territory, surpassing the 37,000 threshold for the first time, boosted by the Federal Reserve’s indications of potential rate cuts in the upcoming year. This surge, marking a significant rebound from previous fluctuations and eclipsing the previous peak in January 2022, symbolises renewed investor confidence and a market eagerly recalibrating in anticipation of a less restrictive monetary environment.

Key Takeaways:

  • Dow Jones Industrial Breakthrough: The Dow Jones Industrial Average marked a historic achievement by rallying more than 512 points, a 1.40% surge, to close above 37,000 for the first time. The index reached an all-time high of 37,094.85 during the day, surpassing its previous peak set in January 2022.
  • S&P 500 and Nasdaq Composite Rise: The S&P 500 jumped by 1.37%, closing at 4707.09, which is just 1.87% shy of its record close of 4796.56. Similarly, the Nasdaq Composite climbed 1.38%, contributing to its significant year-to-date rise of 40%.
  • Federal Reserve’s Policy Decision: The Federal Open Market Committee (FOMC) held the benchmark rate steady in the 5.25% to 5.5% range. Importantly, it forecasted three rate cuts in 2024, indicating a more accommodative monetary policy ahead.
  • Inflation and Economic Projections Adjusted: The Fed acknowledged that inflation has eased over the past year, revising its 2024 inflation forecast down to 2.4% from 2.6%. This adjustment aligns with the producer price index (PPI), which remained unchanged in November, reflecting subdued inflation pressures.
  • Banking and Real Estate Sectors Lead Gains: Bank of America and Wells Fargo stocks gained more than 2%, while Home Depot saw nearly a 3% increase, signalling positive reactions in banking and real estate sectors.
  • Global Markets React Cautiously: European markets, while awaiting the Fed’s decision, showed modest gains with the Stoxx 600 up by 0.1%. This cautious optimism reflects the global market’s sensitivity to U.S. monetary policy shifts.
  • Commodities React to Market Dynamics: Crude oil prices saw movements with WTI rebounding towards $70 per barrel. In the precious metals market, gold prices experienced a significant rise, reaching the $2,030 area after the FOMC meeting.

FX Today:

  • US Dollar Index (DXY) Sees Downward Pressure: In response to the Fed’s meeting outcome, the US Dollar Index experienced a notable dip, declining by 0.85% to 102.80. This marked its lowest point in two weeks, indicating a shift in investor sentiment as the market anticipates a less hawkish Fed in the coming year.
  • EUR/USD Gains amid ECB Speculation: The EUR/USD pair surged, reaching the 20-day Simple Moving Average (SMA). The pair tested resistance levels around 1.0900 but faced some hurdles in sustaining the rally. Investors are now looking towards the European Central Bank’s (ECB) policy meeting for further cues, especially regarding its own rate decisions for 2024.
  • GBP/USD Rallies to One-Week Highs: Following the Fed’s decision, the GBP/USD pair climbed to highs above 1.2600. This rally, underpinned by the Fed’s dovish signals, also anticipates the Bank of England’s upcoming policy decision. The key support level for the pair remains at 1.2500.
  • USD/JPY Drops amid Lower Treasury Yields: The USD/JPY pair saw a substantial decline, losing almost 300 pips and dropping below the 143.00 level. This movement reflects a weaker US Dollar and a decrease in Treasury yields, with the Japanese Yen gaining strength against the backdrop of positive domestic economic data.
  • USD/CHF Trends Towards SMA, Reflecting SNB Stance: The USD/CHF pair continued its descent towards the 20-day SMA, currently testing the 0.8700 area. This trend coincides with expectations that the Swiss National Bank will maintain its current interest rate stance.
  • Antipodean Currencies Display Bullishness: Both the NZD/USD and AUD/USD pairs showed strong performance. The NZD/USD pair rallied towards its December highs, holding above the 0.6200 mark, while the AUD/USD approached the 0.6700 area. These movements are in anticipation of key economic data releases from New Zealand and Australia.
  • Canadian Dollar Rises on Fed’s Rate Cut Outlook: The Canadian Dollar benefited from the Fed’s updated rate expectations, recording new weekly highs. The CAD was supported by a rebound in Crude Oil prices, with WTI bouncing from recent lows. Technical analysis suggests the USD/CAD pair is experiencing bearish momentum, potentially retesting the 1.3500 level.

Market Movers: 

  • Vertex Pharmaceuticals (VRTX): Closed up more than 13%.
  • Revvity (RVTY): Surged more than 10%.
  • Mohawk Industries (MHK): Rose more than 7%.
  • MSCI Inc (MSCI): Closed up more than 3%.
  • Take-Two Interactive Software (TTWO): Increased more than 3%.
  • Roblox (RBLX): Advanced more than 3%.
  • Pfizer (PFE): Led losers in the S&P 500, closing down more than 6%.
  • Southwest Airlines (LUV): Declined more than 3%.
  • Progressive Corp (PGR): Dropped more than 2%.
  • Etsy (ETSY): Fell more than 2%.
  • Adobe (ADBE): Closed down more than 1%.

Conclusion: 

As the trading day concludes with historic highs and a bullish sentiment, the market’s response to the Federal Reserve’s dovish policy signals reflects a significant shift in investor outlook. This day’s trading, set against the backdrop of easing inflation and a softer monetary stance, has injected optimism, reshaping economic prospects across equity, currency, and commodity markets. In the current landscape, the financial markets stand at a pivotal juncture, ready to respond to unfolding economic narratives and policy decisions.

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